The Federal Reserve Bank of New York just published information that makes me concerned for the financial future of consumers who fall into the student loan trap.
Despite what people feel or say, there are still affordable ways to get a college education without going $175,000 in debt for a graphic arts bachelors degree. The value of a good community college education can’t be overstated.
A college education is one of those tricky subjects that lures us into assumptions that might not always be true. For example, should everyone always aspire to go to college? Maybe not.
If you look at the figures about increasing income with a college degree you would come away with the conclusion that a college education using student loans is debt well encumbered.
What the research doesn’t easily convey is how many people get into student loan debt but never get the college diploma. It is estimated that nearly 75% of student loan holders never graduated to obtain the degree. Those former students are in the worst spot possible, repaying debt without the golden ticket.
The absence of commonsense and inquiry is not limited to that startling fact alone. An even more glaring mistake is the lack of calculation that the field of study will be able to support the student loan debt undertaken to earn the degree.
Let’s jump back to the $175,000 student loan debt for the graphic arts degree. It would be very rare for any new graduate to be able to make enough money to service that kind of debt. It’s a bit like buying a cheap car with the most expensive car loan ever. You’ll always be upside down in that loan with no way out.
While college and university education gets more and more expensive, so does the pace of accumulating student loan debt.
Student loan debt now accounts for more debt as a single category than auto loans, credit cards, and home equity loans.
To make matters worse, dealing with student loan debt can be very difficult. It’s not exactly like running up a balance on a credit card that can be quickly and legally dealt with if someone winds up in a bad spot.
While federal student loan programs have some advantageous payment reduction programs, it is possible to have those benefits stop as your income increases and be left with higher balances. And when it comes to dealing with private student loans, there is little help generally available. So little help in fact that some attorneys even recommend defaulting on your private student loans.
Let’s set aside the ridiculous amount of student loan debt building up into great heaps. Let’s even forget about about the slaving away to make student loan payments.
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It is hard to avoid how student loan debt impacts the ability to own a home or even to move out a start an independent living arrangement. Student loan debtors will be trapped at home with mom and dad for years.
If you compare the chart above with the chart higher up showing the increase in student loan debt above all other categories, you will see the tipping point appears to have occurred around the same time student loan debt busted out the top of the pack.
Finally, the most alarming fact about student loan debt that makes me want to vomit is how it impacts the ability for all young people to begin to afford to save for retirement. Dollars saved when young will grow exponentially when they will be needed most in older non-income producing years.
Dollars committed to servicing decades of student loan debt will be lost forever to retirement savings. With concerns over the long term sustainability of Social Security and the impact on the ability for people to begin saving early for retirement, what kind of future are we creating for upcoming generations?
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